- RICS House Price Balance weakened further-than-anticipated in May – Pound trended lower on fresh sign of economic softness
- German trade data bettered expectations – Euro struggled to capitalise as optimism remained muted
- Chinese inflation disappointment supported US Dollar – USD exchange rates rallied as safe-haven demand increased
- ‘Brexit’ opinion polls forecast to remain key influence on Pound Sterling – Stronger ‘Remain’ camp support could fuel renewed rally
GBP/EUR Just Below 1.28 Before the Weekend
The Pound returned to trending close to the day’s opening levels against both the Euro and US Dollar as the European session progressed and the UK’s construction output report bettered forecasts on both the month and year.
The BoE/TNS survey of 1-year inflation expectations also rose to 2.0% from 1.8%.
Next week the Pound could fluctuate as a result of the UK’s latest inflation data. If consumer price pressures are shown to have picked up in May Sterling may advance on the Euro and US Dollar. However, gains are likely to be limited with the EU referendum fast approaching.
(Previously updated 08:30 10/06/2016)
Pound (GBP) Exchange Rate Retreats Today ahead of Inflation Forecast
Demand for the Pound (GBP) weakened on Friday morning, with markets cautious ahead of the day’s UK Construction Output figures and BoE/TNS inflation forecast. With safe-haven demand still heightened by concerns over China this has seen the Pound Sterling to Euro (GBP/EUR) exchange rate trend lower around 1.2762, while the Pound Sterling to US Dollar (GBP/USD) pairing was slumped in the region of 1.4444.
(Previously updated at 17:00 on 09/06/2016)
Sharp Surge in UK Exports Boosted Pound Sterling (GBP) Exchange Rate
A better-than-expected UK trade balance report shored up confidence in the Pound (GBP), with goods exports revealed to have surged 11.8% on the month in April. This suggested that ‘Brexit’ uncertainty had not had a substantial impact on economic activity, prompting the Pound Sterling to Euro (GBP/EUR) exchange rate to trend higher in the region of 1.2770.
(Previously updated at 13:41 on 09/06/2016)
Sharp Decline in UK House Prices Weighed on Pound Sterling (GBP)
Despite UK Industrial and Manufacturing Production data strongly bettering expectations on Wednesday, the Pound (GBP) struggled to maintain its recent upward momentum. While industrial output strengthened markedly in May, rising 1.6% on the year, this suggestion of robust economic conditions was not enough to encourage investors. Worries over the outcome of the EU referendum continued to drag on the appeal of Sterling, with the extension of the registration deadline leading to renewed volatility.
Confidence in the UK currency plummeted anew on Thursday morning in response to the RICS House Price Balance for May, with the headline figure slumping from 39% to just 19%. As this would seem to indicate that the domestic housing market weakened significantly in the last month the Pound retreated further against rivals.
Downside bias is likely to persist for Pound Sterling in the coming weeks as ‘Brexit’ concerns continue to dominate investor sentiment, with researchers at Nomura noting that:
‘Polls showing a swing towards “Remain” could see GBP rally and vol sell off, while polls getting tighter could lead to a GBP sell off and vol rise over increased uncertainty. We believe that the only possible material breakdown of this relationship going into the referendum is if the opinion polls switched to show “Remain” with a lead sufficient to remove the risk of Brexit from market pricing (which we view as unlikely).’
Although the UK’s latest trade figures (published later in the European session) revealed that the nation’s deficit narrowed by more-than-forecast, the Pound was only able to enjoy a slight advance against its most-traded currency counterparts.
German Trade Data Failed to Encourage Euro (EUR) Exchange Rate Strength
The appeal of the Euro (EUR) was once again muted by commentary from European Central Bank (ECB) President Mario Draghi, who reiterated his call for Eurozone governments to start pulling their weight with fiscal policy changes. Draghi’s relatively pessimistic tone did nothing to encourage investors to favour the single currency, raising concerns that the central bank is lacking in sufficient tools to boost the domestic economy. As a result the Euro weakened against its safe-haven rivals, although reduced risk appetite continued to support the currency.
Stronger-than-expected German trade data was unable to particularly encourage demand for the common currency on Thursday morning. Although the April trade surplus did not narrow as far as forecast the figure nevertheless weakened on the month, with the country’s level of exports stagnant. Thus confidence in the robustness of the Eurozone’s powerhouse economy remained limited, offering little compelling reason for markets to favour the Euro at this juncture.
US Dollar (USD) Benefited from Weak Chinese Inflation & Safe-Haven Demand
Following Fed Chair Janet Yellen’s speech on Monday there has been little in the way of domestic data to move the US Dollar (USD). The ‘Greenback’ generally declined in the wake of Yellen ruling out the possibility of a June interest rate hike, with doubts rising afresh over the likelihood of the Fed returning to monetary tightening in the near future. Concerns over the outlook of the world’s largest economy have also been heightened in recent days, dampening the appeal of the US Dollar.
However, a particularly disappointing Chinese Consumer Price Index figure prompted a sharp increase in safe-haven demand on Thursday. With Chinese inflation slowing from 2.3% to 2.0% in May, markets were quick to move away from higher-risk assets, flocking back into the lower-yielding ‘Greenback’. The US Dollar may struggle to hold onto this latest round of gains, though, if Friday’s University of Michigan Confidence Index points towards a continued decline in domestic sentiment.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending narrowly around 1.2727, while the Pound Sterling to US Dollar (GBP/USD) pairing was slumped in the region of 1.4459. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was ceding ground at 1.1358.